The United States Supreme Court recently reaffirmed a long-standing rule that an arbitrator must decide the validity of the terms contained in any employment contract or agreement containing a valid arbitration clause.
Eddie Lee Howard and Shane Schneider worked for Nitro-Lift Technologies LLC, a company that provides production support services to operators of oil and gas wells. Their employment with Nitro-Lift was governed by confidentiality and non-competition agreements that also contained mandatory arbitration clauses.
When Howard and Schneider quit their jobs at Nitro-Lift and began working for a competitor, Nitro-Lift served them with a demand for arbitration. The two filed a lawsuit in Oklahoma state court seeking to have the non-competition agreements declared invalid. The trial court threw out their lawsuit, holding that the arbitration provision in their contract required them to argue their case before an arbitrator. The Oklahoma Supreme Court disagreed, finding instead that it was within the state court’s purview to analyze the full contract, despite the arbitration clause. Looking further at the contract, the state supreme court found that the non-competition provision violated an Oklahoma law that limits the enforceability of non-competition agreements.
Nitro-Lift appealed to the U.S. Supreme Court, which acknowledged the longstanding national policy that favors arbitration as a forum to resolve disputes. The Court then recounted a series of its prior decisions that set forth the correct standard for all other courts to use when analyzing contracts containing arbitration clauses: courts are only to determine the threshold issue of whether or not the arbitration clause itself is valid, and the arbitrator determines questions regarding the validity of the remainder of the contract’s terms.The Court noted that the Oklahoma Supreme Court did not question the validity of the arbitration clause contained in the Nitro-Lift agreements. Thus, the Court found that an arbitrator must determine the validity of the non-competition agreements – and any other issues regarding the terms of those agreements – and the Oklahoma Supreme Court had improperly usurped the arbitrator’s authority to do so.